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Your Taxes: Tax penalty for couples, married or not

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If you buy or sell a house in Israel, your tax will be higher if you are married or in a common-law relationship than if you are single, according to the property tax law. That’s unless you have a prenuptial or postnuptial agreement and meet certain other conditions, according to Supreme Court case law.

Heritage agreements

The Property Relations between Couples Act, 1973, establishes the rules relating to pre-nuptial and post-nuptial relationships, using the term “property agreement”. The law allows courts to confirm property agreements drawn up by couples. In the absence of an agreement, this law considers that the couple’s resources (other than premarital assets and pension) are equalized 50:50. The Israeli tax administration is known to invoke this rule if it suits them. But the law provides other detailed rules, including the one which states: “Marriage must not infringe on the couple’s property, nor confer on one spouse rights over the property of the other, nor impose on the the other the responsibility for the debts of one of the spouses. » Section 4). Lawyers should be consulted on all such legal matters.

Tax penalty for couples

The Real Estate Tax Act (RETL) treats couples, whether married or living together, and their children as a single taxpayer (RETL Sections 9C1C(4)(C)) and 49(b)). There are tax breaks for couples who only own one house in Israel. But tax issues abound if one spouse (or partner) owns another home, for example from a previous relationship.

Purchase tax

If an Israeli resident couple buys a house in Israel, they may have to pay a purchase tax of 8-10% on the total price if they or their spouse already owns an Israeli house – instead of 0% on the first 1,919,155 NIS (figures for 2023).

Sales tax

If a couple sells an Israeli house worth less than NIS 4,846,000, they may have to pay up to 28% property capital gains tax (capital gains tax) if one spouse owns another house.

House and calculator (Illustrative). (credit: INGIMAGE)

Supreme Court against chauvinism

The Supreme Court has repeatedly reviewed the couples tax penalty and ruled on two cases heard together (Real Estate Tax Director v. Blank and v. Rosenboim, Civil Appeals 4298/18, 1886/19, 4/20/21 ).

The Supreme Court called on the Knesset to modify the tax penalty for couples, but in the meantime voted (2 to 1) to ignore the ownership of a second home owned by only one of the partners in cases where couples have a written property agreement specifying the separation. ownership of this house. This followed previous conflicting cases.

Judge Neal Hendel even quoted a Crosby Stills & Nash song; “They are one person, they are two alone, they are three together, they are for each other.”

After quoting William Blackstone from 1765: “Husband and wife are one, and that is the husband…the very being or legal existence of the wife is suspended during marriage” (Commentaries on the Law of England, 442), Justice Ofer Grosskopf critically noted that the “marriage penalty” approach no longer existed worldwide except in Israeli real estate taxation.

Key Business Facts

Two cases were heard together.

In one purchase tax case, a couple purchased a house jointly. However, one of the spouses owned another property before getting married and retained full ownership under a prenuptial property agreement. The court granted purchase tax relief to the wife because she did not own any other homes and the property agreement was upheld, having been signed in good faith.

In the other case, linked to the property capital gains tax (capital gains tax), an unmarried couple moved in together in 2003 but did not sign a property agreement in 2011. man had purchased the house he currently owned, but did not live in, before the couple got together. The woman remained the sole owner of the house where the couple lived (which she had occupied for the first time in 2001, with a previous husband) and which she had bought with her family’s money in 2006. No tax planning here, the Court ruled, even though the man lived on his property and contributed financially to its renovation. The Court confirmed the property agreement: as he only owned one house, he did not have to pay additional tax when selling their shared house.

To sum up

Check if a property agreement could reduce the tax penalty linked to living together. As always, consult experienced professional advisors in each country at an early stage in specific cases.

The author is a chartered accountant and tax specialist at Harris Consulting & Tax Ltd. He can be contacted at (email protected)


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